Wipro Limited (WIT) Q3 2013 Earnings Report, Transcript and Summary

Manoj Jaiswal Azim Hasham Premji - Founder, Executive Chairman, Managing Director and Chief Executive Officer T. K. Kurien - Chief Executive Officer of Information Technology Business, Executive Director and Member of Administrative/Shareholders & Investors Grievance Committee Suresh C. Senapaty - Chief Financial Officer, Executive Director and Member of Administrative/Shareholders & Investors Grievance Committee B. M. Bhanumurthy - Chief Business Operations Officer N. S. Bala - Senior Vice President of Manufacturing & Hi-Tech Jatin Dalal - Chief Financial Officer of IT Business Sridhar Ramasubbu

Sandip Agarwal - Edelweiss Capital Ltd., Research Division Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division Sandeep Muthangi - IIFL Research Mitali Ghosh - BofA Merrill Lynch, Research Division Srivathsan Ramachandran - Spark Capital Advisors (India) Private Limited, Research Division Nitin Padmanabhan - Espirito Santo Investment Bank, Research Division Ravi Menon - Equirus Securities Private Limited, Research Division Pankaj Kapoor - Standard Chartered plc, Research Division Yogesh Aggarwal - HSBC, Research Division Rahul Jain - Dolat Investments Ltd., Research Division Kawaljeet Saluja - Kotak Securities Ltd., Research Division Amar Mourya - IndiaNivesh Securities Pvt Ltd., Research Division

Ladies and gentlemen, good day, and welcome to the Wipro Ltd. Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Manoj Jaiswal. Thank you, and over to you, sir.

Thank you, Marina. Good afternoon, everyone. I wish you a very happy New Year and a very warm welcome to our Q3 earnings call. My name is Manoj Jaiswal and I manage Investor Relations, along with Aravind and Sridhar. We will begin with short address by our Chairman, Mr. Azim Premji; followed by IT business highlights by Mr. T.K. Kurien, CEO of IT Business; and after that, Mr. Suresh Senapaty, CFO, Wipro Ltd., will give us an overview on the financial highlights. The operator will then open the bridge for question and answers with the management team. We have the entire management of Wipro here to take questions and answers from you. Before Mr. Premji starts his address, let me draw your attention to the fact that during this call, we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause actual results to differ materially from those expected. These uncertainties and risk factors have been explained in detail, filing with the SEC of U.S.A. Wipro does not undertake any obligations to update forward-looking statements to reflect events or circumstances after the date of filing thereof. This conference call will be archived, and the transcript will be made available at our website, www.wipro.com. Ladies and gentlemen, let me now hand over the call to our Chairman, Mr. Azim Premji.

Good morning to all of you, and let me wish you a very happy New Year. Just making some broad points in terms of the environment. The overall macroeconomic factors are stabilizing globally. U.S. economy has shown improvement, which is evident from improved consumer demands and improvement in employment data. When I talk to business leaders globally, overall, mood appears to be improving. There is significant focus on productivity, and there is a lot of demand for IT Services if you're able to show value to the customer. In India, we welcome the policy changes announced by the government, the deferment of GAAR, the clarifications of income tax which are pro-industry and investors. The Wipro Corporation quarter 3, quick flash. Wipro recorded revenues in quarter 3 '13 of INR 110 billion, a year-on-year growth of 10%; net income for the quarter at INR 17 billion, a year-on-year growth of 18%. IT Services business delivered sequential growth in line with our guidance. On IT business specifically, technology is being levered by corporations to drive revenue and productivity. We're seeing increased influence of customer budgets by the CSO and our strategy is focused on selling to the CSO in addition to the CIOs. Our focus is to invest in the value, a go-to-market strategy with the changing nature of demand. Consumer Care and Lighting. The Consumer Care and Lighting posted a good growth in revenues and margins, contributed by the top brands of Santoor, Yardley, Enchanteur and Romano. Flagship toilet soap brand, Santoor, continues to be #1 brand in the combined South and West regions and #3 brand in all India level. In international business, Indonesia grew 26%, China grew 32%, Middle East grew 32% and Vietnam grew 24%. We acquired L.D. Waxson, which is a good strategic fit. The transaction helps us consolidate our successful personal care business in Malaysia, with dominant leadership position, and moves us to a leadership position also in Singapore. Infrastructure Engineering and others. Financial year exit is seeing a temporary slowdown across geos and segments due to macroeconomic conditions. In India, the general view is that while we have bottomed out, a lot depends on government fiscal and policy impetus for growth thereon. In our key growth market of Brazil, it is poised for high growth trajectory led by the USD 68 billion economic stimulus and localization efforts. Wipro Infrastructure Engineering is positioned more strongly than ever, the global player and a partner of choice. I would now request T.K. to give a brief overview about the IT business followed by Suresh Senapaty to give you financial highlights.

Good afternoon. It's a pleasure to talk to you. Results for the third quarter 2013 have been good, and our revenues are in line with our guidance. We continue to make progress around the strategy that we had laid out, which is fundamentally around differentiation in spite of the customer and [indiscernible] of the core. The key drivers for operation on Lighting are really focused on customers, execution, investments in new technology and finally, on people. Let me give you a quick update on each one of them. On the customer front, we maintained a heightened focus on opening new accounts and drove value creation in key accounts with respect to accounts management. We now have 10 customer relationships passing INR 100 billion revenue mark with higher growth from these focus accounts, an increase from 9 in the last quarter. We've increased our hunting team to 160, and 50% of the large deal wins for this quarter was hunting led. On our core focus accounts, we are growing at a faster rate, driven by an increase involvement in strategic engagements. Our deal pipeline continues to be strong. We've seen improvement in closure rates in quarter 3, and our expectation is that this will continue in quarter 4. On execution, we continue to invest in process and tools to rate productivity, improve quality and increased agility. The result of this is our realization has gone up by 3.6% sequentially on-site and 3.4% offshore, driven primarily by use of such tools. The continued improvement in customer satisfaction of 2 percentage points on top of a spectacular improvement in quarter 2. On the technology front, we continue to make investments to help out our customers reinvent their business and their technology infrastructure. Wipro has been recognized by Amazon Web Services, AWS, as the Premier Consulting Partner for 2013. The first Cloud Command Center that we spoke about last quarter now provides managed services on the Cloud Command Center platform to customers across the BSSI [ph], media and consumables. Some interesting examples include a cloud-based HR transformation by a European manufacturer across several countries and deployment and management of a next-generation engineering cloud. In the mobility space, we deployed 20 solution [indiscernible] to different industry verticals. Our Smart Mobile Banking Solution implemented by a leading bank did deliver 2 multilingual, mobile-based solutions all across 4 countries in the Middle East. Wipro also recently won the Market Technology Magazine Award of the Year for enterprise mobile origination. We continue our leadership in the analytics space by implementing a sophisticated state-of-the-art global pricing optimization and launch sequencing solution for an auto company. We also continue to see accelerated demand for big data analytics solutions. To engage with customers in executing determination and providing advisory firms with technical savvy. For example, we'll be building an enterprises risk management platform for a leading bank, integrating traditional risk data with [indiscernible] and providing enhanced risk modeling and monitoring. Finally, on the people front, we've increased our focus and engagement with people. Our voluntary attrition at 12.9% is the lowest we've been over the past 12 quarters. We have completed assessment of our entire sales force to help us identify capability gaps and training needs. Training programs have been launched to build domain competency and technology competency in high-impact areas in the emerging technology, architecture and program management. We've done a lot over the past couple of quarters on the fundamentals, and I think we are well positioned to take advantage of the environment that lies ahead of us. Thank you.

Good day, ladies and gentlemen, I wish you a very happy New Year. Before I delve into our financials, please note that for the convenience of readers, our IFRS financial statements have been translated into dollars at the noon buying rate in New York City on December 31, 2012, for cable transfers in Indian rupees, as certified by the Federal Reserve Board of New York, which was $1 equal to INR 54.86 rupees. The quarterly revenue of our IT Services segment that was $1,577 million, or in rupee terms, INR 86 billion, appears in our earnings release as $1,568 million based on the convenience translation. Moving into the quarter performance. Our IT services revenue for the quarter ending 31st December, 2012, was $1,571 million on constant currency, a sequential growth of 2% within our guidance range of $1,560 million to $1,590 million. Our vertical perspective, with strong performance in healthcare and life sciences, grew at 7.1% sequentially. We continue to see strong growth in energy, natural resources and mobility. From a service line perspective, infrastructure services continue to perform well, growing at 4.3%, and business application services grew at 4.7%, sequentially. Sequentially, volume declined in the current quarter by 1%. We have increased, tremendous focus on valuing productivity and is an objective in utilization improvement. Productivity drive has good impact on volumes. We're also impacted by incremental leaves during the quarter. Despite the impact of progression and restitution of units issued, continued investment in the sales and marketing and utilization drop, we're able to expand margin by 10 basis points, supported by ForEx benefit and through improvement in revenue productivity and other operational parameters. Our IT Products business grew by 11% on a year-on-year basis. Consumer Care and Lighting business continue to see good momentum, with revenue growth of 17% year-on-year and operating profit growth of 24% year-on-year. On the currency front, our realized rate for the quarter was INR 54.54 versus a rate of INR 54.35 realized in the quarter ending September 2012. On a quarter-on-quarter basis, ForEx net of cross-currency impact gave us a positive impact of 80 basis points to operating margins. As of period end, we had about $1.8 billion of ForEx contracts on-site. The effective tax rate for the quarter was 21.9%. We generated a free cash flow of INR 19 billion in the third quarter, which was 110% of net income. And operating cash flow, which was INR 22 billion in quarter 3, was 126% of net income. Our net cash balance on the balance sheet was INR 104 billion, an increase of INR 30 billion, sequentially. We'll be glad to take questions from here.

[Operator Instructions] The first question is from Dhaval Mehta from Edelweiss Securities.

Sandip here from Edelweiss. One question on the utilization side. Utilization has fallen sharply 300 basis points or approximately 15 [ph] this quarter. So if you can show some light on that, but I understand that volume was a little muted. Secondly, although it has been mentioned that there was something in there simply because of external volume decline, but I think still, the volumes are far lower than what we expected. So if you can please throw some light on these 2 factors, it will be great.

I'll ask -- I'll hand it over to Bhanu, who is the head of operations, to kind of answer that question.

Yes. Sandip, this is Bhanu. On the utilization front, the one element that also we need to take into account this quarter is the number of holidays and since this being the year end for many cases. So that's one element that has impacted our utilization. However, we also continue to invest in terms of building our skill sets for the future, future demand. So that's another reason. The third element, which I think -- which will pick up after 3 years, the amount of hyper-automation that we're doing in the advanced services that we're doing, resulting in higher productivity for us there and hence, reduced volume growth to that extent. And this is coming on top of the quarter 2 activities that we have done. You can see that in the price realizations that you see both for on-site and offshore increases that you're seeing in the second quarter result. Our belief is that in the run part of the business, there is enough and more activities that we can do by automation. Technology can do a lot of activities in this space and will continue to do proactively implementing that run part of the business going forward as well.

So one follow-up question on the same. So where do you see utilization settling going forward? So what is your, more or less, view for the next 12 months? Where can our net utilization, excluding [indiscernible]? Can it reach 78%, 79%? Or it will be too optimistic taking into account the kind of hyper-automation we are moving into?

Yes. So Sandip, this is Azim in the line here. So the way we look at it is, this is an investment that we continue to make in the bench. And as the growth starts picking up, we will start liquidating the bench, especially people who will join us at specials will complete their training and join the project. To that extent, I would think that it's a direct reflection of the growth that we get. But other than that, I think for bench, I think you should look at our order growth trajectory and we would be in sync with that.

One last question. We have been very positive about Japan. This quarter, they have declined there. And secondly, if you see the product engineering and mobility space and R&D businesses, they declined there also. If you can throw some light on that, it will be great.

So Sandip, this is [indiscernible] related point. So we had certain project closures in the engineering space, which were a part of [indiscernible], also from Japan, which are not well replenished by the new project. So therefore, this quarter, you're seeing there -- and Japan is a smaller geography. So any small variation really comes up as a large percentage number. So I think it is more of a measure of order size of the geography, where you see large variations.

On the R&D business and product engineering and mobility as a whole?

Suresh?

Sandip, I cannot break up the R&D business. If you go back in the past, our R&D business is pretty much all based on telecom. Fundamentally, what happened if we take 9 quarters of last year and 9 quarters of this year, we have almost kind of given up approximately about $25 million of revenue on the R&D business itself. And that's primarily sector related to telecom. To the question on product engineering, if I have to kind of just break up the 2, product engineering and mobility are really classified together. On mobility, we have growth. In product engineering, we have been kind of hit especially on the silicon side of the business. So in one area, such as silicon manufacturers, we've taken a fairly large hit primarily because our client base itself has been going through significant stresses. At most, the elevations happens on the silicon side. We find that, that is being reflected in top line, which reflects -- which ultimately gets showed up in a vertical versus primarily manufacturing. So N.S. Bala, who runs our manufacturing, can talk too a little bit about it.

Sandip, this is N.S. Bala. I head the manufacturing and hi-tech business unit. In the semiconductor segment, there are -- especially the chip manufacturers who are supporting the license like average on PCs, there's been a big shift in terms of the status of players. So Apple, Wacom and Samsung are the 3 big players who are doing well, but everybody else in the industry is struggling. And as a result, there have been significant slowdown in the discretionary spend in many of these organizations. And that has really affected us in terms on the R&D upstream design spend that we have been able to capture in the past.

Okay. And one last final question for T.K. How do you see next year? I understand that you're very optimistic now on the demand scenario, but how are things looking as of now, budget side plan -- budget side? And which geographies do you think will do extremely well?

Sandip, I just want to correct that. I'm not extremely optimistic. I think that I'm [indiscernible]. I think sitting where I am today compared to where I was last year, I see signs of optimism. And if last year, we were sitting on a scale of 1 to 10 is 5, today, we are probably sitting at 7. So there is improvement in the general environment. There are also uncertainties as we go along, which is primarily the fiscal cliff and lots of uncertainty from an economic perspective. The second one that happens, too, as far as India demand is concerned, while we see significant changes in terms of policies by the government, we still haven't seen it reflected in buying -- actually, into buying by our constituent group. I think that's the second piece. It's more -- I think it's more fundamental, which is that early in our business, we have to play the role of an aggressor especially on the run side of the business. While our hunting group is fully [indiscernible], I think it's still at least a couple of quarters to date where we are going to see a secular trend of deals which are going to be at least the hunting deals are going to be much, much larger and probably more in terms of the quarter. So that's the equation that we see.

[Operator Instructions] Next question is from Ankur Rudra from Ambit.

The first question is on the demand conditions. You did highlight that you've seen a perceptible change in conditions. However, the guidance for the fourth quarter seems a tad lighter than for the third quarter. Is this a reflection of your working days? Or are the deals in the final taking slightly longer to convert?

So it's a reflection of actually both. So here's what happened. We have closed quite a few deals in the last quarter. The ramp-up to that is what is kind of a little uncertain right now partly because of customers' situations, partly because of our situation. I think the combination of both. And that's what we have planned. That's what we have factored into our guidance.

When you say it's your situation, I would wonder -- I mean, your supply side doesn't seem to be that challenged. So what is holding you back?

It's not a supply-side challenge. It could be in terms of the construct of the deal itself and executing to it. I think that's the key to it. If it's got specific, like large on-site presence, getting permissions from the customers will actually go in. It's both. A third-party constraint could affect our ability to do the transition.

Okay, fair enough. And the risk of repetition, can you elaborate on the project or the projects that have helped you achieve the improvement in realization while volumes have remained soft?

So specifically, most of the realization improvement has come from typical run projects. And on the run projects, we've been both on the infrastructure side, as well as on the application -- the maintenance side. We have really been driving productivity around managed services contracts. So what we've been doing over the past year, 1.5 years is that we've been moving most of our time and materials contract into fixed-priced contracts. Our fixed price link back into business outcomes. When that happens, it gives us significant level of flexibility in terms of what we can do underneath in the terms of deploying people. So that's where the majority of the productivity is coming. We expect to see that same productivity gains continuing into this quarter, too, as this is going into 2 quarters.

The next question is from Sandeep Muthangi from IIFL.

You highlighted a lot of deals related to newer services. But are we also interested in what's happening with your traditional business which are in better outsourcing in terms of the revenues and the deals that have you won? Because I'm looking at 3 quarters of de-growth and frankly, it's not been a great year for traditional services this year.

So what would you like to know, specifically?

I would like to know what is the kind of traction you're seeing on the bread-and-butter outsourcing deals. Is it competitive pressures? Or are you losing market share? Or what exactly is happening over there?

So here is what we think. So if you look at -- let me just break up the business into a couple of components. Let's break it up into legacy services primarily around application, our legacy services around infrastructure. In both of these, we are seeing significant pricing pressure driven by different models out there. That's we are clearly seeing. So the models have changed quite a bit from pure off-shoring to a combination of people takeover, asset takeover, plus a long-term deal that follows that. That's we are clearly seeing. So there is price pressure out there as far as traditional services are concerned. As far as the erstwhile enterprise application services business is concerned, we see that being more consulting led and hence, we are seeing higher price realizations coming out of that particular segment. So if you have to break out the back office, the middle office and the front office, what we find is in the back office, we are finding there is pricing pressure and there is competitive action. In the middle office, we're not seeing so much. In the front office, we're not seeing so much.

Right. Just one question on your business application and the enterprise application services. This quarter has been good, something that we've seen with other companies also. I would like to know what would be the pattern of demand over here? Is it primarily driven by the short term but consulting-led kind of engagements? Or is it the traditional manufacturing-related stuff that is driving the growth?

I will ask, Sandeep Bhanumurthy who runs this business to answer that.

Sandeep, this is Bhanu. What we are seeing is most of the package implementation services is definitely consulting-led. A large portion of them or as you described, the short activities that are happening in terms of is it doing a quick upgrades or picking customers to newer business value services, right. That's where we are seeing not the traditional, large-scale implementation deals. That's not what we are seeing right now.

The next question is from Mitali Ghosh from Merrill Lynch.

My question was really on the deals closed this quarter. And also, if you can give us some color on the size and composition of deal pipeline. I mean, I understand you mentioned that it looks better. But if you could share some details even if not in terms of size and number of deals won, but even on a relative basis sequentially or year-on-year?

So I'll give you some rough numbers in terms of how our deal pipeline has changed over the past years. I think 1 quarter to the next would probably be a fairly good -- the last -- same quarter last year to the quarter now will be a fair indication of where the pipeline is. Our pipeline roughly has gone up by 2.5x between last quarter, same time last quarter, the same time this quarter. I think the delta that we see is really in terms of the large deals that came here. And the large deal pipeline has also changed quite significantly in terms of numbers. So the large deals that we have, the way we classify them, is over $100 million deals. And there, we have seen roughly about 2 -- again, roughly about twice the type of large deals, in terms of just the number of deals that we classify as large deals. I think we have seen liquidation of that pipeline towards the end of quarter 2 and in quarter 3. We expect that as we get to quarter 4, we are going to see a little more of that.

Yes. So that's actually very helpful. Just in terms of anything to take away in terms of maybe which verticals or service lines that you're seeing a pickup perhaps?

There, we are seeing a pickup as roughly around the -- it's mostly due to the verticals where we have a problem or where we have a pickup. It's around Energy & Utilities and around healthcare, banking, especially retail banking. Those are the kind of areas that we're seeing it. Actually, it is -- the number is actually 1.7x, not 2.5x, just to clarify, in terms of the overall pipeline increase.

Sure. And basically, the third quarter guidance is really quite wide at half to 3%. Is the swing factor really the ramp-ups that you spoke about? Or is it also that you're seeing a lot of smaller, short-cycle discretionary projects, which is difficult to take a call on at this point in time?

So here's what's happening, Mitali. If you look at our deal accounts -- we had about 80 deal accounts that were dead when we started this whole journey. We are now down to 20. So what has typically happened there is there is significant portion of -- roughly, about $10 million, we have lost in that particular area in terms of deal accounts. As we continue, during this quarter -- again, our deal accounts, they would have come down. That's a negative factor, if you may. The positive factor is that we expect to see, number one, some of our ramp-ups happening in some of the deals that we have won; and number two, which I think is one of the big swing factors for us, is exactly what you mentioned. We are unable to anticipate how much of discretionary spend would actually kick in this quarter. In some cases, we have a fair idea of when it would -- the amount allocated. In some cases, we also have orders against that. But the project's kick off date is a little bit of a questionable issue right now. We expect to have visibility to that in the next 1 week.

Okay. That's very helpful. Just one quick follow-up on that, the deal accounts coming down from 80 to 20 and the $10 million loss. What time periods are we talking of? Is this over the last 2 years or...

Yes. So we lost $10 million [indiscernible], Mitali. So we lost $10 million on Q3 of last year versus Q3 of this year.

[Operator Instructions] The next question is from Srivathsan Ramachandran from Spark Capital. Srivathsan Ramachandran - Spark Capital Advisors (India) Private Limited, Research Division: I just wanted to get your thoughts on margins. It's been in a tight band almost on 6 or 7 quarters. So how should we look at it broadly over the next 12- to 18-month kind of time frame assuming constant currency? Are you seeing a large recurring increase, still not much of a margin uptick? I just wanted to understand the rate.

Jatin Dalal will answer the question.

So if you see this quarter, we have had a good realization benefit flowing through, which has helped us mitigate the impact of the rescue that we gave this quarter and the promotions that went through in the current quarter. If you see over last full quarter, we have substantially increased our S&M spend. And our focus is that we will remain invested in the short term. But of course, our medium term view is that we would like to increase margins. But that will be a medium-term objective. Short term, it will remain invested. Srivathsan Ramachandran - Spark Capital Advisors (India) Private Limited, Research Division: So in this band, kind of [indiscernible] that you see?

Our model is that there is always -- there are quarterly variations which will always kick in. So it's difficult to comment on the time. But the overall focus would be to not cut the investment that we have put at the -- in the sales and marketing.

The next question is from Nitin Padmanabhan from Espiritu Santo.

T.K., on the -- I think in the morning on TV, you were mentioning possible or significant volume drops on the business. I'm just trying -- if you could just let us know what exactly were you referring to and what should we infer?

Just kind of restate the question. I quite didn't understand that?

All right. In the morning, on TV, you had mentioned significant possible volume drops around the business. So I'm just trying to understand what were you referring to with regard to the volume drops? And pointing to the next quarter, is it something that you worry about?

Fair enough. Let me clarify that. I mean, I don't want you to walk away to believe that there'll be significant volume declines. So here's what I was mentioning. If you look at what happened to services industry itself, I think there's more to than automation coming in. We see a significant decline in overall employment in that particular area. It's difficult around the business area. That's what I was referring to. I wasn't referring specifically to Wipro. I think what we've seen is over the past 2 quarters, we have had significant productivity benefits kick in. We expect that productivity benefit to carry on into this quarter, too. But on the chain side, we expect to see volume coming in. And so whatever we lose in terms of run-site volume, we expect to kind of make that up, to some extent, on the chain side of the business. That's how this whole portfolio will change.

The point being made is that on the business, what you have, there you will see pressures of volume coming down. And when you win more around the business, you will continue to add more volume. The volume add will happen on both sides. But if you started on business, if you continue to decline because you're driving more productivity.

All right, sure. Just to understand that a little more. I think we have driven significant volume of improvement in revenue productivity in the last quarter, this quarter and I think even in the few of the earlier quarters. What I'd like to understand is if you move forward, let's say, moving into next year, how should -- what do you think would be -- when do you think this cannibalization of volumes will stop in a way? Or when do you think that volumes will kick up in a certain sense? And even in terms of margins, when do you think that -- would there be a volume kicker in there by -- there should be relatively better boost from margins with -- for it to be already at a higher level?

What we were saying is that as you go forward, a little bit combination of the business is what you'll be winning, which is run the business and change the business. So on that basis, if we'll keep moving on a quarter, there might be a volume growth more and then the pricing lesser and vice versa. So you will -- therefore, we will still look at more overall revenue growth as opposed to which element of that is growing. And so as the profitability is concerned, like we said, we want to stay focused in terms of all our growth opportunities to be able to take growth back and before we sort of try to change anything in terms of our profit drivers. But other ways, in a shorter term, medium term, we will expect the profit margins to be remaining in another range. But as you go forward and get our growth back, we will look for more optimization.

All right. So fundamentally, just to understand, let's say, versus 4 quarters ago -- or with the height of new productivity, the business, excluding investments that are getting into -- other investments that are getting to the business, the business is definitely far more profitable. Would that be a fair assumption?

Well, at the end of the day, we'll see whether we have got the desire, the rate of growth before we can do something else. So I don't think we can go on the basis by 2 quarters from today or 3 quarters from today and 4 quarters from today if it's going to happen. And it's not a stated goal of 2%, 3% and 4%, but are based on where are the opportunities and where are we in terms of what kilometer. And from that point of view, that is where our redetermination point will come to.

Just to cut a long story short, it's like this, growth first. The minute growth comes and profitability will follow.

Right, right. And just one last question, if I may. You did mention that today, on a scale of 1 to 10, you are at 7 versus 5 earlier. So that -- and I think most peers are talking about the next year being stronger than this year. There is one thing that I'm a little confused about. I think one of the peers spoke around the business being -- seeking more scope around the business and discretionary being challenged versus -- or you see it the other way around? So I'm just trying to understand that.

So it really depends on which segment of the market you're playing in. So for us, we still believe that there is tremendous opportunity on the ramp side. But after ramp side comes in, there will be volume spike and volume decline because that will drive productivity to -- on the other hand, we believe that the discretionary budget would give you volume in a transitory volume spike every quarter. So we could have managed both. So on a secular basis, if you look at a 2- to 3-year period, you'll see around the business volume coming down. I'm not talking about a quarter-to-quarter number.

And also, around the business comes from more outsourcing happening from in-sourcing to outsourcing. Around the business comes from more renewals that will come about. From that point, included funnel for around the business is also quite good.

I think the biggest thing that we see as an opportunity and I lever it that if you don't get around the business revenue, fundamental chance that you can drive productivity and pricing is going to be limited beyond a certain stage.

The next question is from Ravi Menon from Equirus Securities.

I'd just like to ask about the traction on Europe, if we could get some color on which specific verticals or which specific services is driving that, that will be great.

Okay. So on the Europe side of the business, fundamentally, we are seeing good growth over the past quarter, Ravi. Fundamentally, the areas that have been driving growth for us has been energy and natural resources. To some extent, we were seeing the retail banking also kicking in and manufacturing, too. So we've seen kind of -- those 3 verticals have really kind of kicked in.

And which specific countries -- whether it's Continental Europe, if you could classify it that way?

It's kind of a mixed bag. It's depending upon the industry that you're in. It depends. For example, manufacturing is more continental.

The next question is from Pankaj Kapoor from Standard Chartered Securities.

Just trying to understand this bench a bit more. Last 4 quarters, we have been adding almost, I think, around close to 7,000 of people even as the volume growth has not been really picking up. I'm just trying to understand this bench buildup is more in terms of anticipation of the deals, which have got delayed, and that's the reason we are seeing this. Or is it more in terms of the deal that you're anticipating, which could come in, in the next few quarters? And we haven't started much early on the buildup.

So I'll ask Bhanu to kind of answer that. But I think Bhanu can give you a little bit of color on the composition of the bench that they're carrying because that thing is an important part of the overall cost equation and the reason as to why we are carrying bench, Bhanu?

Yes. So Pankaj, this is Bhanu. [indiscernible] level if you look at our bench composition, there are 2 specific activities we are trying to drive there. One is in terms of ensuring that we have a continuous selling pipeline for our organization, and that is done through both our fresher recruitment and on-boarding those freshers. We continue to do that. We continue to go as per plan. And in fact, we're putting more emphasis this quarter when we completed our visiting of the engineering campuses as well. And we have improved substantially in our campus positioning. And that has helped us get better candidates as well. So that's one piece of the bench that you see. The second piece of bench that you're seeing is preparing for the deals that we are fighting for and the deals that are likely to close in the coming few quarters. And these are special skill sets, niche skills, essentially around 3 areas: One is architecture. Second one is program management. Third one is about domain. So these are the 3 areas where we have trying to build the bench to get ready for the deals that we are focusing on.

Is it possible to get a sense in terms of like the last 4 quarters, how much gross addition you have done and how much of that would be freshers versus laterals?

Yes, so this is Jatin, Pankaj. But on -- we run around 60% of freshers as a job division.

The next question is from Yogesh Aggarwal from HSBC.

Just a couple of questions. Firstly, T.K., it's been 2 years now with all the changes going on at Wipro. So any target from you? When will the growth come in line with the sector average in the next few quarters? And then I just have one quick follow-up.

Yogesh, what it is -- I think last year, from our perspective, in many ways, I think we've been doing a lot in terms of matching our portfolio and in terms of making sure that we are getting the right customers at the right time. I think next year, we should see clearly. The idea will be to see next year we see growth coming back.

Okay, next year. Okay, that's good. And then just quickly, not on pipeline or funnel, but in terms of the order bookings, was Q3 better than Q2?

Yes.

Right. Okay, great. And then just quickly, I couldn't understand. You said that from a client side, there are certain limitations which could lead to delay in ramp-ups. I just couldn't understand that. What are the limitations?

Yogesh, just to kind of clarify that, the economic situation in the U.S. by some chance deteriorate, then there's a concern. Because right now, what we are seeing is the fiscal cliff issue has been postponed to February. And it is something -- it is still a shut out, for example, at the federal government, that is we could really be affected. That's our understanding in terms of discretionary spend. And that -- the effect of that, the large effect kind of take us back into quarter 1, and that's the worry.

Okay, okay. So basically, the positivity for 2013 is over the year but just in the near term, next 1 or 2 months because of the fiscal cliff.

I mean, this -- so it's like this. I hate to sound like Chicken Little, but the reality is that if there is a fiscal cliff issue that comes up, then I think demand is bad for everyone, not only us.

Okay. I mean, one of the things we were also looking at is that the U.S. corporates are almost at an all-time low in terms of corporate IT spend. So do you -- when you talk to your client, is there a feeling of underinvestment for a few years? And can things come back with much stronger kind of a vengeance if all the fiscal cliff passes through?

Our own sense is to bet that -- what we believe is that we think sentiment can turn very positive very quickly, okay. And that's -- so we have to be very ready for it from a supply chain perspective and start being in accounts and actually talk to the right people when that happens.

The next question is from Rahul Jain from Dolat Capital.

Basically, I don't understand from the volume which has just grown by over 5% from LTM basis versus the employee count that has grown by more than 6%. First of all, in terms of -- can you help me understand where the mismatch is? Is it all because the growth is not coming in line of hiring expectancy? Or is it a buildup for our future?

So can you -- Rahul, can you repeat the question? Is it volume is 5% up but the cost of employee is up by 6%?

Actually, it is like volume growth is not as quick as the growth in the actually hiring. So where does the mismatch is? Is it like the growth -- the volume has not picked up the pace of the expectancy? Or is it because of the buildup which you want to make for the future period?

Yes. So Rahul, that is right and I think reflected in some form by -- in the bench composition, where we'll continue to hire freshers as scheduled this year. Already, the volume has been slow. To that extent, our hiring is ahead of our overall volume growth. As we talked about in the earlier question, the anticipation is that a part of this bench is really a deterrent for the deals, deterrent in pipeline. And part of this bench is really investment for future that we don't want to miss any part of our pyramid. And we want to remain focused on continuing to building that pyramid from the bottom.

Okay. In terms of -- if I look at the utilization that has gone up by more than 400 bps and the margin are largely sustained by 2 counts, one on the pricing and the second on the FX. So from the pricing sustainability perspective, how much effort -- we see there is a growth in on like-for-like basis? And how much of the pricing growth has happened on the portfolio investment?

Yes. So Rahul, as you rightly just said, there is a like-to-like rate type increases and that -- there are realization improvements which flow through as you are able to deploy more automation, more technology and more productivity tools into your fixed price projects or managed services delivery. Current quarter and also last quarter, we have seen the peak in realization. That has largely been through the fixed price improvement. On the retail side, we have all 3 scenarios. We help customers that have been able to get our plans, rate increases. We are peaking -- which are peaking from 1st November [indiscernible] from 1st January and so on and so forth. There are certain customers where the customers had requested for a lower increase than what was originally talked about or discussed about. And then there are small bucket of customers, which have indeed requested for a rate decrease. So it's a mixed bag on like-to-like side on -- but I would say there are certainly -- it's more positive cases than a small bucket of negative cases. And on fixed price side there is a clear secular trending improvement that we have seen over last few quarters.

So if you look at the cumulative picture there, do we see the growth in next year to be even driven by the pricing as a major contributor? Or it could be a minor thing addressed from the volume?

So the answer will be we drive both. I don't think you can drive one on expense -- at the expense of the other. You clearly have to drive volume and you can drive price.

Also, what happens is the mix change. When you go up high in the value chain of -- there is a potential. For example, 80% of the price realization has improved or many has not filled in the fixed price. When the timing material does happen, it is like Barclays Cooper and Barclay mix change. And it isn't a direct -- we want to restrict growth in fixed price or time and material or in time and material and coupon rate or in the high-skill staff and or high-end practices. We are wanting to drive maybe in every possible place, every possible geography, every possible customers which are part of our strategy. From that point of view, it is more often happens that in a quarter-to-quarter, someone is ahead and someone is not ahead. But that does not necessarily mean the one which is not ahead is weak.

I mean, I agree to that. But if I look at from even from the year-on-year basis, I mean, there are various parts of the business which are seeing either downfall or very modest growth. So is it like something that we are trying to grow the business too high [indiscernible] some of the focus area. The problem is that some of the basic or traditional business is actually seeing a downfall, which we are not able to cover up.

No, we have talked about some of these segments being challenged like the telecom OEM space, the semiconductor space. So from that point of view, there is a direction to the portfolio that is happening because those have been traditionally our strength areas in the past. And over the years, a lot of that has undergone correction. And perhaps we are indeed tailing off some of that sort of correction happening in the few quarters to come. But we are building into some of those accounts the enterprise space, which we have never been traditionally. So we have been building, getting into that and building on it.

The next question is from Kawaljeet Saluja from Kotak Securities.

My question is for Jatin and Mr. Senapaty. A pretty simple, straightforward question, if I just look at increase in realization over the last 2 quarters, it's been 6% on-site, 5% offshore. Now assuming no mix in -- no change in the mix of business, that should provide 350 to 400 basis points of margin kicker. Obviously, the reported margins are flat. So can you just help me reconcile this number? And just in case of perhaps this takes a little bit of time, and then can I ask another question to Kurien? As to how should I think about the complete disconnect between volumes and realization? Is it a fundamental -- I mean, should we just continue to look at these metrics the way we have been historically? Or are there changes that you're trying to drive in the business? That is something which reducing the utility of the disclose metrics.

I think frankly if you ask me, the only measure that matters is how the top line is doing, right? Everything else unmeet. They are only 2 measures that, frankly, we worry about with them. One is top line growth, the other one is gross margin. Because gross margin, at the end of the day, depending on the component that you're in, reflects quality of revenue.

I mean, T.K., in that case, maybe you can do away with those disclosures, right? Because the 45 minutes of this call has been spent on trying to understand those...

I agree with you [indiscernible]. I think, the various time when people talk about so many headcounts I'm adding, so many offers I've given, so many volume. It basically comes from an environment where traditionally we have grown in a supply-constrained environment, as to who bring to the campuses and how many people have you offered first and that is some form or here it used to be the lead indicator for growth going forward. But currently, it is not the case. Everybody's talking about the demand environment. I mean, today half of the questions that you talk about? Is what is the demand environment looking like whether U.S., Europe, which particular segment and so on. So yes, theoretically it has lost usability. But because traditionally, all of us have been giving, and you guys have been deliberating on it or engaged on it. But at the end of the day, it is losing relevance.

So I mean, in that case, Mr. Senapaty, we throw all these leads and disclosures so that in the next quarter, should I expect a new set of disclosures from October 30?

I mean see, it's a function of -- it's practically impossible if I can have unanimity amongst yourself. Because for us, we communicate because that is how it makes you comfortable and we don't want to do any kind of a discomfort situation, to get you a feel as we want to hide something. But yes, clearly that is how the analyst community is in think without thinking. It is irrelevant as a point to share.

No, Mr. Senapaty, normally the discomfort is essentially around the fact that on this entire call you have been discussing about price and volumes, and that's not the way you track business internally. And if the disconnect between the way you track the business internally versus the metrics you want to disclose, then I don't know how it helps our...

I agree with you. But it's only that you guys make comparisons, you guys communicate with investors and et cetera, et cetera. We want to be relevant to you in terms of the way you look at. And maybe it's a matter of time that you come to think with us, or a matter of time that our thinking as to undergo change in line with yours, and therefore, we need to think it much more substantially. That is definitely our current thinking.

Fair enough, Mr. Senapaty. We are quite flexible, so we can go along with your thinking as long as it provides us the...

The next question is from Amar Mourya from IndiaNivesh.

So my question is primarily related to...

Your voice is not audible. Can you speak up a little bit?

Yes, sir, so my question is primarily related to the RTB side of the business. I mean, what is the primary reason why we are seeing a muted growth in that particular side of business? That this #1. And secondly, what component of the total revenue is coming from the RTB side of the business? If you can give me some of the approximate number for that.

Yes. So maybe, we can share this data point offline, maybe Investor Relations team can share with you. We, at any point in time, have, I would say, a fair mix of both change the business, which is typically our applications and development business, and run the business, which is ADM plus BPO plus [indiscernible] largely. If you'd see these 3 compositions, which we shared at our -- in our data sheet, you would have a good sense of run the business.

Yes, sir. Actually according to me, what I had got was that 40% of the business is coming from RTB and remaining is coming from the change the business, right? That is what -- as per the disclosures given by the company. So what typically -- what I want to know here is that what we are hearing from few of your peers is that they are seeing a good growth in RTB side. And primarily, what is the reason why we are not seeing a growth in particularly this business?

Let me try answering this question. If you look at it, there are 2 areas where growth is typically coming from. One is on the technology infrastructure side of the business. And if you look at our growth there, this quarter we have started fixing up growth in that particular area. That area for us, for quite a few quarters, are actually light. Second area where we are now seeing business slowly picking up is around the BPO side of the business. Those are the 2 areas where fundamentally where we're seeing big changes in terms of volume coming in. And we're seeing the early signs of that volume coming in into the profit. On the traditional ADM kind of work, if you look at our real estate, our real estate primarily was weighted in the customers that we were waiting [ph] more to development project and discretionary budgets than we were on the application management side and the infrastructure management side. It seems those 2 have been areas for us which has kind of affected our RTB part of the business.

Okay, so when we expect to...

Clearly, that would be a real focus for us. Like -- I think I mentioned earlier, our real focus today is to get growth in those 2 areas back and get volume in. But it will be transitory volume. So it will go in, it will drive productivity, it'll come back, and we get more volume in.

Okay. And secondly, sort of about the productivity part of the business, I mean, the kind of pricing growth which are getting primarily from the productivity, I mean, how much scope we see in terms of going forward in, say, another 2 or 3 quarters? I mean, do we see further levers in terms of the productivity to actually get some pricing increase primarily because of that?

It feels like it. It's a combination of 2 things we have expressed right now. But as we can clean up the x space and move projects into more product-dealing contracts, we are going to find that at certain point of time, we need to get volume in also. Without volume long term, there is a certain natural value that you'll hit in terms of what you can get in terms of rate increase. But for an absolute number, we're pretty confident that within a narrow bank, we can manage it. We can maintain what we gotten now.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.

Yes, thank you, Marina. Thank you, everybody, for your time. With this, we come to the end of our conference call. In case there is any question that we could not answer due to time constraint, please do feel free to write to us. We will respond to it. Thank you, and have a good day.

Thank you, members of the management team. Ladies and gentlemen, on behalf of Wipro Ltd., that concludes our conference call. Thank you for joining us, and you may now disconnect your lines.